Ventana Research Analyst Perspectives

Making Payroll Management a Strategic Part of Human Capital Management

Posted by stephanmillard on Jan 30, 2013 10:23:55 AM

Managing payroll has long been viewed as an administrative task, time-consuming and focused on ensuring that everyone is paid correctly and on time. In fact, in the American Payroll Association’s most recent annual study, the main metrics tracked for payroll performance are payroll cost per employee, payroll processing accuracy rate and dollar value of overpayments – all of which focus only on cost or accuracy. So payroll management is rarely viewed as having any strategic value to the business and typically is assigned a low priority in finance, HR and payroll departments. The payroll process is elevated in importance only when errors are made that result in people being paid or taxes being withheld incorrectly.

That perspective is changing now, as human capital management (HCM) plays an increasingly critical role in attracting and retaining talent and as processes and information become ever more interconnected. In this new environment, payroll management has an enhanced role. As a part of the system of record in every company, payroll data can be connected to information in core human resources management, workforce management and talent management systems to help create a more complete view of human capital for executives and managers of organizations.

In addition, its history conveys on payroll management a unique status in human capital management.  Having found it too cumbersome as an internal system, many organizations outsourced their payroll functions to various providers. Now, however, with the rise of easily accessible cloud computing that does not require significant in-house administration, many are re-evaluating payroll as a process that can be integrated with other related ones in a cloud-based HCM strategy.  Doing so adds significant value in that both payroll process and payroll data then are connected to the unified HCM solution, enabling employees, managers and executives to use both in ways they have not been able to before - such as streamlining the pay-for-performance process. And with the rise of powerful suite-wide analytics tools, organizations can do much more useful analysis across all HCM data, including payroll, and use the results as part of compensation management efforts to make better decisions.  Our most recent benchmark research into compensation found that 69 percent of organizations identify payroll as the number-one operational system to integrate. Further, our research found that many organizations place a strong importance on the compensation process, which is closely tied to payroll, to drive efforts to develop successful pay-for-performance and talent management initiatives across their companies.

Due to the relative novelty of this advance, the market today lacks empirical information to guide organizations as they seek to evaluate optimized payroll management tools and discover best practices to integrate them with the rest of their HCM tools. There is a need for information to understand the market requirements of businesses of different sizes as well as across industries. Filling this void is the focus of our upcoming benchmark research on evolving payroll management, which will explore organizations’ payroll management choices and assess their competency and maturity.

Successfully implementing optimized payroll management business initiatives requires an in-depth understanding of the options available and the people, process, information and technology issues that must be addressed. In our unique benchmark research we will analyze all these dimensions of how organizations are currently using their payroll systems and to what extent and in what ways they are complementing or competing with human resources management, talent management and workforce management applications. And it will identify benefits that organizations are realizing from the use of these new tools as well as issues they have encountered.

We will launch this benchmark research project into evolving payroll technology, processes and information management shortly.  As the results become available in coming months, I will be sharing here on my blog some of the most interesting insights the research uncovers on organizations’ priorities, issues and key needs when evaluating payroll management products. I will also be assessing providers’ offerings to see how they are maturing and how well they are meeting the needs of a broad range of organizations of differing sizes and in specific industries. Be sure to keep a eye on this space in the coming months to see some of what our research uncovers as payroll is a key component of my research agenda for 2013!


Stephan Millard

VP & Research Director


Topics: HCM, Human Capital Management, Office of Finance, IT Research, Cloud Computing, Information Applications, Workforce Performance, TCM

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Written by stephanmillard